WEBVTT - Surveillance: Debt Pressure with Malpass 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.240 with Jonathan Faroe and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.560 the Bloomberg Terminal, and the Bloomberg Business App. To save 0:00:30.680 --> 0:00:32.840 every second year, in every minute. Right now at these 0:00:32.880 --> 0:00:35.959 meetings of the World Bank and International Monetary Fund, an 0:00:36.040 --> 0:00:41.080 annual visit with David malpass outgoing President of the World Bank, 0:00:41.240 --> 0:00:45.160 and instead of talking World Bank affairs, aid to the world, 0:00:45.240 --> 0:00:48.360 and the struggles of the war in Ukraine, we will 0:00:48.440 --> 0:00:51.600 hearken back to mister melpass this moment of seven and 0:00:51.760 --> 0:00:54.320 O eight. More than anyone in this building and set 0:00:54.320 --> 0:00:58.080 of buildings, he lived front and center at bear Stearns 0:00:58.080 --> 0:01:02.600 previous financial collapse. David, thank you so much for being 0:01:02.640 --> 0:01:04.160 with us. I'm not going to ask you an easy 0:01:04.240 --> 0:01:06.920 question like does it allude back to O eight right now? 0:01:07.319 --> 0:01:11.280 But the stresses that you see right now in American banking, 0:01:11.959 --> 0:01:15.640 in the huge tensions between China and the United States. 0:01:16.080 --> 0:01:20.080 Does it lead to that word suddenly where suddenly things 0:01:20.120 --> 0:01:23.240 can change as they did in O eight Hi Tom 0:01:23.400 --> 0:01:28.360 Hi everyone. So there were big there was a maturity 0:01:28.400 --> 0:01:31.640 mismatch going on then too, and it maybe from the 0:01:31.720 --> 0:01:36.200 same causes. Remember in the two thousands, interest rates were 0:01:36.240 --> 0:01:39.560 being raised very slowly, and so that built up a 0:01:39.640 --> 0:01:45.640 giant maturity mismatch, which some companies were funding with repose 0:01:45.760 --> 0:01:49.640 funding treasuries, so in the treasury bonds, and so in 0:01:49.720 --> 0:01:53.800 that way it hearkens to now we have in the 0:01:53.880 --> 0:01:59.480 US banking system some banks are funding treasury bonds with 0:01:59.640 --> 0:02:04.040 the posts. But a big difference now is the biggest 0:02:04.120 --> 0:02:07.560 duration mismatch is the Federal Reserve itself. It funds with 0:02:08.040 --> 0:02:12.440 users overnight borrowing to fund a giant bond portfolio some 0:02:12.639 --> 0:02:16.480 nine trillion dollars, the European Central Bank eight trillion dollars. 0:02:16.639 --> 0:02:20.120 And I think the dominant feature now is the asset 0:02:20.160 --> 0:02:23.280 allocation that came out of that. If you have giant 0:02:23.360 --> 0:02:28.440 buyers of long maturity of duration, in effect, the central 0:02:28.440 --> 0:02:32.239 banks were buying giant duration. And so what that meant 0:02:32.360 --> 0:02:34.920 is it distorted all world markets. And we're now in 0:02:34.960 --> 0:02:38.160 the workout phase there'll have to be a normalization of 0:02:38.320 --> 0:02:41.960 interest rates. It means pressure on asset prices for a 0:02:42.040 --> 0:02:44.720 long period of time. That's what's showing up in the 0:02:44.800 --> 0:02:48.880 meetings here. The expectation that they'll be weak growth for 0:02:48.919 --> 0:02:53.480 a while put pressure on people in developing countries throughout 0:02:53.560 --> 0:02:57.080 the world, and that pressure is getting intense. Frame the 0:02:57.200 --> 0:03:01.280 distinction between the World Bank weak growth call and that 0:03:01.440 --> 0:03:05.280 of your colleagues at the International Monetary Fund. Both of you, 0:03:05.400 --> 0:03:09.480 to editorialize, have been grim. What's the mail passion level 0:03:09.520 --> 0:03:14.280 of grim in your forecast? Ours are a little weaker 0:03:14.400 --> 0:03:18.280 than the IMFs, but remember they often do one in 0:03:18.360 --> 0:03:21.080 purchasing power parodies, so if you adjust for that, there's 0:03:21.120 --> 0:03:24.800 not that much difference. We use market based exchange rates, 0:03:24.840 --> 0:03:27.680 and so ours is two and there's I think would 0:03:27.680 --> 0:03:30.399 work out to two point four. So they're both week 0:03:30.600 --> 0:03:35.880 week forecast for twenty twenty three, and that's showing up. 0:03:35.880 --> 0:03:38.520 In the US. You saw the Federal Reserves saying maybe 0:03:38.520 --> 0:03:41.280 in the US recession mild recession in the second right. 0:03:41.480 --> 0:03:44.360 What's great about this is mail pass uses a slide 0:03:44.440 --> 0:03:48.560 rule from Colorado College, very killed. So this is growth. 0:03:48.640 --> 0:03:50.880 Let's talk about debt. If we can. This is something 0:03:50.880 --> 0:03:53.960 you've been really outspoken about, David, over the last few years. 0:03:54.080 --> 0:03:57.320 China the world's biggest creditor to paw nations. I understand 0:03:57.320 --> 0:04:00.720 there's been some conversations this week. What's that now, if 0:04:00.720 --> 0:04:02.440 we could start that, and then if you could tell 0:04:02.480 --> 0:04:06.280 me whether you're satisfied with it. The debt has grown 0:04:06.360 --> 0:04:10.800 up over the years. The composition of the debt is 0:04:10.880 --> 0:04:14.040 different from in the old days. That used to be 0:04:14.280 --> 0:04:17.200 US banks that were lending to foreign countries. Now we 0:04:17.279 --> 0:04:23.000 have China and the euro bond market lending to developing 0:04:23.080 --> 0:04:26.560 countries sovereign debt. So there was extensive talk yesterday. I 0:04:26.640 --> 0:04:30.760 co chaired with Crystallina the debt roundtable. China came at 0:04:30.800 --> 0:04:34.320 the level of the PBOC governor and also the Ministry 0:04:34.320 --> 0:04:37.640 of Finance of China and so they participate in the 0:04:37.720 --> 0:04:41.600 discussion and there was there were some agreements. There was 0:04:41.839 --> 0:04:45.320 agreements that there needed to be more timeliness of the 0:04:45.440 --> 0:04:48.840 launching into a restructuring process, that there needed to be 0:04:49.240 --> 0:04:52.000 data sharing. China's asked from the beginning, can't we get 0:04:52.040 --> 0:04:55.400 the data earlier? That hasn't been the tradition, but that's 0:04:55.440 --> 0:04:58.080 going to be and there's a there's a paper to 0:04:58.120 --> 0:05:01.200 do that. Also a working group which is important on 0:05:01.240 --> 0:05:06.200 the technicalities of burden sharing. How do you have equal 0:05:06.200 --> 0:05:10.360 burden sharing among creditors so that they all participate in 0:05:10.440 --> 0:05:14.200 the restructuring process of the debt. This is really important 0:05:14.200 --> 0:05:18.240 to the people in developing countries because their governments are 0:05:18.279 --> 0:05:22.600 paying these large, high not low interest rate kind of 0:05:23.080 --> 0:05:26.800 market rate or above market rate debt and it means 0:05:26.839 --> 0:05:29.720 it's draining the countries of what they need for nutrition, 0:05:29.880 --> 0:05:34.560 for health, for education, for climate adaptation. Are you satisfied 0:05:34.560 --> 0:05:36.080 with what China is committed? So would you need to 0:05:36.120 --> 0:05:38.800 see more? We need to see this week and it 0:05:38.880 --> 0:05:42.039 was mentioned last night. Yesterday there were big meetings, so 0:05:42.360 --> 0:05:46.560 we had the G twenty meeting, the G seven meeting 0:05:46.600 --> 0:05:50.159 of finance ministers, the Development Committee, the governors of the 0:05:50.240 --> 0:05:54.000 World Bank met and expressed strong support for the World 0:05:54.040 --> 0:05:58.680 Bank leadership. There were and there was discussion at the 0:05:58.960 --> 0:06:03.160 G twenty even late last night of the specific countries 0:06:03.520 --> 0:06:07.320 that needed to get action on debt relief. Zambia was here. 0:06:07.360 --> 0:06:09.800 I had a panel earlier this week with the Zambian 0:06:09.920 --> 0:06:14.080 finance Minister, the Ethiopian finance minister, they're burdened by high 0:06:14.120 --> 0:06:17.160 levels of debt. So the proof is in the pudding. 0:06:17.200 --> 0:06:22.240 The details of is Zambia going to get an mu 0:06:22.480 --> 0:06:25.400 we'd like to see one this week. China needs to 0:06:25.640 --> 0:06:30.440 be willing to sign off on the structure of the restructuring. 0:06:30.760 --> 0:06:33.560 One big question has been transparency and a lack of it, 0:06:33.680 --> 0:06:35.640 and a lack of understanding of just how much debt 0:06:36.000 --> 0:06:39.480 China has extended to in a lot of developing nations. 0:06:39.800 --> 0:06:42.039 Do you walk away from the meetings yesterday with a 0:06:42.080 --> 0:06:46.080 greater sense of how much debt they currently have tied 0:06:46.120 --> 0:06:50.000 to the developing world. We know quite a bit about it, 0:06:50.080 --> 0:06:54.480 but not the full extent. And there were calls yesterday 0:06:54.480 --> 0:06:58.039 and there's specific discussion of this that some people say 0:06:58.120 --> 0:07:01.360 swap lines by China into banks should be left out 0:07:01.400 --> 0:07:04.720 of the restructuring. Some say it should be included in 0:07:04.760 --> 0:07:10.640 the restructuring. There was talk about what to do with arrear. 0:07:10.840 --> 0:07:16.160 So as these restructurings drag on, the interest on the 0:07:16.240 --> 0:07:19.680 interest goes up and up, So can you agree in 0:07:19.720 --> 0:07:23.040 advance on how to handle that? And so it gets 0:07:23.080 --> 0:07:26.640 straight into the details. There was a there was a 0:07:26.680 --> 0:07:31.720 proposal made that it well the proposals across the board 0:07:32.000 --> 0:07:34.040 on how to handle this. So I think there's lots 0:07:34.040 --> 0:07:36.280 more work to be done, but at least there's a 0:07:36.280 --> 0:07:39.160 technical or a workshop that's going to be set up 0:07:39.400 --> 0:07:43.520 to bring people up to speed on how you calculate 0:07:43.680 --> 0:07:47.400 net present value reduction within a debt restructuring. Would you 0:07:47.440 --> 0:07:50.480 identify this and everything we've just discussed over the last 0:07:50.520 --> 0:07:53.080 few minutes as these number one issue that you'll hunt 0:07:53.120 --> 0:07:56.040 it obit to your successor at the World Bank? Well, 0:07:56.080 --> 0:08:00.600 certainly debt transparency is a giant issue. There was there 0:08:00.680 --> 0:08:03.800 was a call yesterday for the debt or countries to 0:08:04.000 --> 0:08:08.720 release the contracts that have non disclosure clauses. So that's 0:08:08.760 --> 0:08:12.920 a specific thing that will be that will outlast me 0:08:13.640 --> 0:08:15.760 and it's not going to get resolved this week, but 0:08:15.840 --> 0:08:19.280 I hope it does. You know, the the China is 0:08:19.320 --> 0:08:24.440 written into the contracts non disclosure clauses. That was specifically discussed. 0:08:24.720 --> 0:08:27.040 So as we look toward the future, I think what 0:08:27.160 --> 0:08:29.560 I'm handing over to my successor is a World Bank 0:08:29.640 --> 0:08:32.680 that's in really good shape. That was that was a 0:08:32.800 --> 0:08:37.520 main theme from yet from yesterday's meetings, but also in 0:08:37.760 --> 0:08:42.000 a developing world that's under this giant pressure from too 0:08:42.120 --> 0:08:45.520 much debt but also not enough growth coming out of 0:08:45.520 --> 0:08:47.959 the advanced economies. Well, this won't be the end of 0:08:48.000 --> 0:08:50.000 our conversations. You know that. It's great to catch up, 0:08:50.040 --> 0:08:52.720 divid ass always diapid malpass. Next to see the president 0:08:52.800 --> 0:08:59.000 some of the world banks right now, an annual visit 0:08:59.080 --> 0:09:02.120 as we do with these meetings with Gida Gopinath's first 0:09:02.120 --> 0:09:06.040 deputy Managing Director at the International Monetary Fund, and once 0:09:06.080 --> 0:09:08.319 you she has done critically in the last ninety days 0:09:08.960 --> 0:09:13.240 is drive forward the discussion of crisis and monetary policy 0:09:13.679 --> 0:09:16.920 and how we're going to extract ourselves from this math. 0:09:17.000 --> 0:09:20.280 Doctor Gopenath, thank you so much for joining this morning. 0:09:20.679 --> 0:09:25.120 You mentioned buried in your wonderful essay this scary idea 0:09:25.200 --> 0:09:31.760 that inflation becomes unanchored. Is inflation unanchored at this point? No, 0:09:31.960 --> 0:09:33.880 not at this point. I think if you look at 0:09:33.920 --> 0:09:37.680 the data, it's queerly anchored, and the US and Europe 0:09:37.679 --> 0:09:42.320 and several other countries. That is not a consent right now. 0:09:42.600 --> 0:09:45.000 The concern right now off of the five year forecast. 0:09:45.080 --> 0:09:47.840 It's your fault. We all know that. But the IMF 0:09:47.840 --> 0:09:50.680 five year forecast that we have three percent or even lower. 0:09:50.720 --> 0:09:54.920 The World Bank even set a little bit lower means 0:09:54.960 --> 0:09:58.360 a disinflation, it means a lower rate regime. If we 0:09:58.440 --> 0:10:02.800 haven't an unanchored or an anchor disinflation, does that lead 0:10:02.840 --> 0:10:08.680 to financial stability within your forecast? If inflation expectations the anchor, 0:10:08.679 --> 0:10:12.600 there are multiple problems associated with that. Firstly, interest rates 0:10:12.600 --> 0:10:16.960 go up. Policy rates have to rise much faster to 0:10:16.960 --> 0:10:21.440 bring inflation down, and that can generate much greater financial 0:10:21.480 --> 0:10:25.280 stress than we have seen with consequences not just for 0:10:25.320 --> 0:10:27.400 the country where the tightening is happening, but if you're 0:10:27.400 --> 0:10:30.280 a large economy with spillover to the rest of the world. 0:10:30.600 --> 0:10:33.720 So that could be very consequential. And it's one of 0:10:33.760 --> 0:10:37.600 the downside scenarios we have in our world economic outlook, 0:10:37.640 --> 0:10:39.959 which is if interest rates have to go up much 0:10:40.000 --> 0:10:42.240 faster and you have much more tightening, you could end 0:10:42.320 --> 0:10:45.480 up with global growth going as low as say one percent, 0:10:45.559 --> 0:10:48.400 which is would be very bad. So what is the 0:10:48.520 --> 0:10:53.600 nominal GDP separation of the IMF five year forecast? Is 0:10:53.640 --> 0:10:57.640 it for a dropping disinflation or lower inflation and with 0:10:57.800 --> 0:11:01.360 it lower real GDP bringing us down to a truly 0:11:01.440 --> 0:11:06.120 subdued nominal GDP now we have. Our expectation is that 0:11:06.920 --> 0:11:11.360 inflation will be conquered in over time. It's not going 0:11:11.400 --> 0:11:14.520 to happen immediately, but if you go into twenty twenty four, 0:11:14.840 --> 0:11:17.040 you're going to see inflation around the world getting much 0:11:17.120 --> 0:11:21.640 closer to central bank targets. Real growth is going to 0:11:21.720 --> 0:11:25.920 slow also because we don't have any China's anymore that 0:11:25.960 --> 0:11:27.880 are growing at very high rate. So for the global 0:11:27.960 --> 0:11:31.319 economy as a whole, we don't have very large engines 0:11:31.360 --> 0:11:35.040 of growth, so that's generating the weakness and real growth. 0:11:35.120 --> 0:11:38.480 Also because we have aging demographics, so unless we can 0:11:38.520 --> 0:11:42.040 find a way to raise productivity, you know, we are 0:11:42.040 --> 0:11:45.000 going to struggle with low growth. How controversial has your 0:11:45.040 --> 0:11:47.520 call been that inflation is going to get back down 0:11:47.800 --> 0:11:50.679 to where it was close to pre pandemic even by 0:11:50.679 --> 0:11:54.120 twenty twenty four. You know, if you look at focus 0:11:54.120 --> 0:11:56.480 and if you look at market expectations in the US, 0:11:57.440 --> 0:12:01.960 you see an even more rapid fall in inflation that's expected. 0:12:02.000 --> 0:12:03.640 So we are actually on the side of being a 0:12:03.679 --> 0:12:06.280 little more cautious about how long it's going to take 0:12:06.320 --> 0:12:09.959 to bring inflation down, but we think the policies will work. 0:12:10.000 --> 0:12:13.200 There's been some very substantial increase in interest rates we 0:12:13.280 --> 0:12:15.920 are seeing now that show up in terms of high 0:12:15.920 --> 0:12:19.480 frequency data, this slowing of the economy, and we think 0:12:19.520 --> 0:12:21.640 that will bring down inflation, but it will take time. 0:12:21.840 --> 0:12:24.080 Do you think that the balance of risks has shifted 0:12:24.160 --> 0:12:26.600 since what we saw with silicon valid banking, with some 0:12:26.679 --> 0:12:29.360 of the other banking institutions, and the huge dropoff in 0:12:29.440 --> 0:12:32.120 lending that we've seen periphery in initial data, that the 0:12:32.160 --> 0:12:37.079 balance of risks has shifted to perhaps have monetary officials 0:12:37.240 --> 0:12:39.840 be a little less aggressive when it comes to great 0:12:39.880 --> 0:12:42.680 hikes and to err on the side of pausing or 0:12:42.720 --> 0:12:46.640 even cutting. As always, central banks need to take into 0:12:46.640 --> 0:12:51.200 account how economic conditions look, and with the financial stress, 0:12:51.240 --> 0:12:55.480 you've had a tightening in financial conditions, bank lending standards 0:12:55.480 --> 0:13:01.040 have tightened, smaller banks, credit has weakened and will slow 0:13:01.080 --> 0:13:04.280 the economy down to some extent, which is why central 0:13:04.320 --> 0:13:06.520 marks may have to do less. But again, I think 0:13:06.559 --> 0:13:08.640 we're still waiting for more data to show up to 0:13:08.679 --> 0:13:11.440 know exactly how much of an effect that's Hey Agata, 0:13:11.480 --> 0:13:13.440 there's a bit of tension between what the IMF has 0:13:13.480 --> 0:13:16.880 communicated this week and what politicians have responded with Chancellor 0:13:16.920 --> 0:13:20.280 Hunt told us yesterday that he disagrees with your forecast. 0:13:20.320 --> 0:13:22.880 He's entitled to disagree with it. I spoke and we 0:13:22.880 --> 0:13:25.800 spoke to to be a Sadrian literally in the last hour, 0:13:25.960 --> 0:13:29.320 and he said he sees evidence of lending bank lending 0:13:29.600 --> 0:13:33.000 contracting in America. Secretary Yellen says she didn't see evidence 0:13:33.000 --> 0:13:36.480 of that. How'd you explain the daylight between what your 0:13:36.520 --> 0:13:41.600 institution is saying and what politicians are saying back? So, firstly, 0:13:41.640 --> 0:13:43.640 I think if you look at the numbers, we're not 0:13:44.080 --> 0:13:46.400 that far apart. Right. So, for instance, in the case 0:13:46.440 --> 0:13:51.440 of the UK, I think what Jeremy Hunt would recognize 0:13:51.480 --> 0:13:54.400 is that we've actually had a substantial upgrade for UK 0:13:54.559 --> 0:13:57.800 for this year. It's just that we haven't gone as 0:13:57.880 --> 0:14:00.640 high as maybe some of the other focus. We've actually 0:14:00.640 --> 0:14:03.800 seen things turn out better than expected in the UK. 0:14:04.240 --> 0:14:06.880 In the case of credit conditions, again, I think the 0:14:06.920 --> 0:14:11.480 difference is that Tobias was pointing to all of credit supply, 0:14:11.640 --> 0:14:14.080 not just from the large banks, and so you see 0:14:14.080 --> 0:14:17.360 that in the smaller banks, you see certainly credit supply slowing, 0:14:17.640 --> 0:14:19.880 but if you look at the large banks, indeed credit 0:14:20.000 --> 0:14:22.320 is holding up. See don't believe the Treasury sectary is 0:14:22.360 --> 0:14:25.040 misleading us when she says things like she doesn't see 0:14:25.080 --> 0:14:30.400 evidence of bank lending contracting. I think that's the description that, 0:14:30.520 --> 0:14:33.480 especially if you look at large banks, you're seeing credit 0:14:33.520 --> 0:14:37.680 holding up. Is an accurate representation again of the data. 0:14:37.720 --> 0:14:41.480 At this point, I look at where we are and 0:14:41.520 --> 0:14:44.360 I wonder of the textbooks and the theory that's out there. 0:14:44.440 --> 0:14:49.480 It seems like everybody's post pandemic supply driven dynamics making 0:14:49.480 --> 0:14:51.800 it up as they go, and the day to day 0:14:51.880 --> 0:14:55.240 Gopeneth grind is putting together the Blue Bug the world 0:14:55.280 --> 0:14:59.040 economic outlook. How much are you relying on a traditional 0:14:59.120 --> 0:15:04.720 economics versus going it's a whole new world after all? Well, 0:15:04.760 --> 0:15:07.720 I think there are pots that are new, and then 0:15:07.720 --> 0:15:09.760 there are parts that are old and stay the same. 0:15:09.800 --> 0:15:14.080 So we're using a combination of models, but also going 0:15:14.160 --> 0:15:16.720 beyond is our start and valid model? Right now? You 0:15:16.760 --> 0:15:19.000 and I are going to be with Olivia Blanchard tomorrow. 0:15:19.040 --> 0:15:22.600 He's trumpeting the dynamics of our start. Is it useful? 0:15:22.680 --> 0:15:27.160 Is there an efficacy traditional to traditional John Williams economics start? 0:15:27.360 --> 0:15:29.560 I think it's a very useful input in thinking about 0:15:29.640 --> 0:15:33.640 how to fashion monetary policy. And also fiscal policy. I 0:15:33.640 --> 0:15:36.840 think again, it's an input you cannot be that cannot 0:15:36.840 --> 0:15:38.720 be the only thing one is focused on. I think 0:15:38.720 --> 0:15:40.600 that's what the pandemic in the war is not. A 0:15:40.680 --> 0:15:43.960 lot of people say that this group of meetings is 0:15:43.960 --> 0:15:47.400 somewhat different in nature than previous ones, just because we 0:15:47.440 --> 0:15:49.480 feel like we're on the precipice of some sort of 0:15:49.480 --> 0:15:51.960 turning point, either back to what we came from or 0:15:52.000 --> 0:15:54.760 something new. How would you characterize it in terms of 0:15:54.800 --> 0:15:58.560 how these meetings are different? I think this meeting is 0:15:59.560 --> 0:16:02.040 different to the extent that I think we are in 0:16:02.080 --> 0:16:05.520 this period where after all the marshal policy tightening that's happened, 0:16:05.880 --> 0:16:08.600 we are seeing the effect of it. Because we know 0:16:09.160 --> 0:16:11.480 all this tighting works with a lag, So I think 0:16:11.520 --> 0:16:13.600 this is the lag and we're seeing it play out now. 0:16:14.240 --> 0:16:17.560 There are concerns about how this could play out. You know, 0:16:17.600 --> 0:16:21.280 as of now, financial policy tools have worked well in 0:16:21.360 --> 0:16:23.800 being able to calm markets, but there are risks that 0:16:23.840 --> 0:16:27.000 are out there. The second aspect is we are looking 0:16:27.040 --> 0:16:29.680 at a period where growth in the world is not 0:16:29.760 --> 0:16:31.520 going to go back to the three point eight percent 0:16:31.560 --> 0:16:35.080 it used to be, but more three percent. And lastly, 0:16:35.120 --> 0:16:38.160 we have many vulnerable economies around the world with very 0:16:38.200 --> 0:16:41.120 high levels of debt and could be in debt to stress. 0:16:41.200 --> 0:16:43.880 So you know, I think we have to all, first 0:16:43.920 --> 0:16:47.200 of all, recognize that the world economy did better than 0:16:47.240 --> 0:16:51.040 expected last year. It showed much strong resilience. We still 0:16:51.080 --> 0:16:54.480 have tight labor markets, consumption spending is still holding up. 0:16:54.680 --> 0:16:57.800 But that said, the balance of risks are squarely to 0:16:57.840 --> 0:17:00.280 the downside. That last point so important. Up in a 0:17:00.280 --> 0:17:02.440 half of the MFA to thank you. As always, it's 0:17:02.440 --> 0:17:14.160 going to catch up and going to see it. Parlor 0:17:14.240 --> 0:17:16.800 Gentle Learney joint us. Now that E Commissioner for Economy 0:17:16.840 --> 0:17:19.760 and Financial's Commissioner, good morning, good morning. We won't to 0:17:19.760 --> 0:17:21.760 talk about you. They don't worry about it. I want 0:17:21.760 --> 0:17:24.240 to talk about something much more difficult. Let's start with 0:17:24.280 --> 0:17:28.520 this question. Does Europe have a coherent approach to China? 0:17:28.920 --> 0:17:32.400 And if you do, what is it? Well? I think 0:17:32.440 --> 0:17:37.119 we do have. This is the obvious answer. It is 0:17:37.800 --> 0:17:46.560 evolved this attitude since three four years Our attitude until 0:17:46.680 --> 0:17:50.760 three four years ago was the attitude of well, we 0:17:50.920 --> 0:17:58.359 have important trade relations and whatever they are, we will 0:17:59.000 --> 0:18:04.440 strengthen this relations. Now I think we are very clearly 0:18:06.720 --> 0:18:12.920 on the perspective to rebalance these trade relations. Who also 0:18:15.040 --> 0:18:20.200 leave behind a certain ingenuity that we had in hoping 0:18:20.280 --> 0:18:27.480 that this trade relations in themselves would be in an 0:18:27.560 --> 0:18:30.920 equal treatment in a level playing field, which was not 0:18:31.200 --> 0:18:36.760 completely the case. So we are still cooperating economically, but 0:18:36.880 --> 0:18:43.280 we have also a geopolitical perspective which is of course 0:18:44.600 --> 0:18:50.399 quite different from China, and it is the perspective of 0:18:50.400 --> 0:18:55.040 our partners and US and the Western I wonder, how liar, 0:18:55.160 --> 0:18:56.879 if your view commission is different to the view of 0:18:56.920 --> 0:18:59.080 the French President. I'll share some of his language with 0:18:59.119 --> 0:19:01.880 political the weekend. He said, the great risk that you're 0:19:01.920 --> 0:19:04.960 a faces is that it gets caught up in crises 0:19:05.000 --> 0:19:08.280 that are not ours. He's talking about China and Taiwan 0:19:08.320 --> 0:19:10.720 and potentially just following whatever the United States does. Do 0:19:10.760 --> 0:19:13.280 you agree with that sentiment. No, I agree on the 0:19:13.320 --> 0:19:16.520 fact that we should avoid this kind of crisis. But 0:19:16.800 --> 0:19:20.160 of course if this crisis occur, we know which side 0:19:20.240 --> 0:19:26.119 we are in. I look at Italy and I have 0:19:26.200 --> 0:19:28.560 to bring this up. In an American football this would 0:19:28.560 --> 0:19:31.000 be called an audible. I'm going to change gears here 0:19:31.400 --> 0:19:35.280 on what's unspoken. The stunning statistics and you as former 0:19:35.320 --> 0:19:37.840 Prime Minister of Italy can speak to this of a 0:19:37.960 --> 0:19:41.720 birth rate in Italy post pandemic. It takes you back 0:19:41.760 --> 0:19:47.800 to eighteen sixty one. The demographic driving forces that we 0:19:47.960 --> 0:19:52.199 face at these meetings are enormous. Are we depeopling the 0:19:52.240 --> 0:19:58.680 Western world? I think we run a risk. I think 0:19:58.720 --> 0:20:06.000 this risk particularly clear in Europe, especially in Eastern Europe, 0:20:06.960 --> 0:20:12.640 but indeed also in my country and other European countries. 0:20:13.880 --> 0:20:20.439 How do we face this challenge? Well, I think we 0:20:20.480 --> 0:20:29.080 should continuously look to our perspective in a not only 0:20:29.119 --> 0:20:33.760 in a horizontal way. I mean Europe and its big 0:20:34.119 --> 0:20:40.560 eastern neighbor Europe and Russia. Right, we need vertical way. 0:20:40.960 --> 0:20:49.359 Knowing that Europe, the Mediterranean, the Arab world, Africa, this 0:20:49.520 --> 0:20:54.600 clock will have in twenty fifty two point five billion 0:20:55.160 --> 0:21:03.440 people and we need cooperation legal mygration. This is of 0:21:03.480 --> 0:21:09.679 course joined with internal policies that are increasing geography. This 0:21:09.880 --> 0:21:15.960 is the solution. Well, the European experiment forward has to 0:21:16.000 --> 0:21:19.200 be and I'm percolating out there is an optimism about 0:21:19.200 --> 0:21:23.920 a better nominal GDP for Europe. Do we still have 0:21:24.080 --> 0:21:29.040 eurosclerosis or should I say the risks of eurosclerosis or 0:21:29.119 --> 0:21:32.240 view broken free of that, as Joan mentions with a 0:21:32.280 --> 0:21:37.960 new relationship with China among others. Well, I think, well, 0:21:37.720 --> 0:21:45.600 we love living in Europe. I think it's we are 0:21:45.680 --> 0:21:50.760 proud of our values, our culture, but we should not 0:21:52.240 --> 0:21:58.199 think ourselves and if possible, the world to Europe as well. 0:21:58.320 --> 0:22:04.160 What a beautiful place with such a good values, wonderful culture, etc. 0:22:04.600 --> 0:22:10.520 Because Europe is also the place where innovation happens. Are 0:22:10.560 --> 0:22:13.399 you using a new nominal GDP in Europe? Have you 0:22:13.560 --> 0:22:18.680 broken free from the euros courosis theme of decades? I 0:22:18.720 --> 0:22:21.640 think there is a chance to do so. Why there 0:22:21.760 --> 0:22:27.040 is this chance because I think, for the first time, 0:22:29.760 --> 0:22:33.439 the europe I mean, in this case, the European Union 0:22:34.280 --> 0:22:42.920 is thinking itself as an actor on the global race 0:22:43.640 --> 0:22:49.560 to innovation, to clean technology. What in our brass language 0:22:49.640 --> 0:22:57.600 we call strategic autonomy is something completely new for Europe. 0:22:58.320 --> 0:23:03.560 Our idea of the European economy was until three four 0:23:03.640 --> 0:23:09.399 years ago, the idea of a economic single market based 0:23:09.440 --> 0:23:16.679 on competition and open trade full stone. Now the European Union, 0:23:17.200 --> 0:23:23.960 with plans of strategic autonomy is a European Union fighting 0:23:23.960 --> 0:23:27.320 for innovation. Just quickly here, how much is that new 0:23:27.440 --> 0:23:30.040 vision at odds with a vision that the United States 0:23:30.080 --> 0:23:34.560 has in terms of a cohesive trade relationship with China 0:23:34.640 --> 0:23:39.520 and a cohesive trade relationship across the Atlantic. Well, I 0:23:39.600 --> 0:23:44.840 think we should be recognizing the fact that we will 0:23:44.880 --> 0:23:49.080 have in the coming years a sort of race to 0:23:49.760 --> 0:23:53.960 clean technology in the world, a race with the US, 0:23:54.440 --> 0:23:59.240 a race among the economic global player, a rice for subsidies. 0:23:59.400 --> 0:24:03.160 The problem is to avoid that this become a race 0:24:03.560 --> 0:24:09.080 for subsidies. And the risk is this to avoid is 0:24:09.200 --> 0:24:15.760 that this undermine the relation with our partners. I'm very 0:24:15.800 --> 0:24:20.840 optimistic from this point of view because with the Americans, 0:24:21.080 --> 0:24:27.560 with Canada, with other countries, with Japan, we cooperate very well. 0:24:27.880 --> 0:24:34.199 Everyone recognize that Europe has the right and the duty 0:24:34.680 --> 0:24:38.359 to provide security to its own supply chains of the future. 0:24:39.119 --> 0:24:41.760 I think that this is clear for all our partners. 0:24:42.400 --> 0:24:46.639 So the problem is how we participate to this phrase 0:24:46.720 --> 0:24:51.920 for clean technology without transforming it in a subsidies war 0:24:52.440 --> 0:24:57.760 and in a tension among partners, and without transforming this 0:24:58.160 --> 0:25:03.240 in a reduction of global trade. Difficult balance to find. 0:25:03.960 --> 0:25:07.280 But if we don't find this balance, if we don't 0:25:07.280 --> 0:25:10.960 have global trade for an economic block that like the 0:25:11.040 --> 0:25:14.520 European Union. Yeah, it's a big problem. Commissioner, thank you, 0:25:14.680 --> 0:25:16.520 Thank you very much. Politant to learning that. The Area 0:25:16.520 --> 0:25:24.880 Commissioner for Economic and Financially Fast Tobias Adrian is Director 0:25:24.880 --> 0:25:27.960 of Monetarian Capital Markets at the IMF. What that means 0:25:28.320 --> 0:25:30.879 he's in charge of the green book and all around 0:25:30.960 --> 0:25:36.000 financial stability here. He has enjoyed a recent American banking crisis. 0:25:36.320 --> 0:25:41.040 You people put out PhD fancy spider charts which show 0:25:41.119 --> 0:25:45.639 the different factors that are of challenge right now, Which 0:25:45.680 --> 0:25:51.240 spider chart in Which factor in that chart matters right now? Yeah? 0:25:51.320 --> 0:25:54.000 So I think what we have seen in recent months 0:25:54.480 --> 0:25:58.920 is that banking stocks have sold off quite a bit, 0:25:59.200 --> 0:26:02.280 in particular in US and Europe, but the market more 0:26:02.280 --> 0:26:07.480 broadly has been fairly stable. So financial conditions have tightened 0:26:07.520 --> 0:26:09.840 to some extent, but it's really in the banking sector 0:26:09.920 --> 0:26:13.000 that we have seen most of the tightening, and that 0:26:13.160 --> 0:26:16.880 could have consequences down the line. For microactivity. I want 0:26:16.880 --> 0:26:18.840 to go to your work at m I two with 0:26:18.920 --> 0:26:21.919 Olivia Blanchard. He's all the rage. He's my book of 0:26:21.960 --> 0:26:27.440 the summer with wonderful difference equations on our starred folding. 0:26:27.520 --> 0:26:33.399 The theory right now to the hardcore pragmatic realities of macroeconomics. 0:26:33.640 --> 0:26:37.840